Agricultural Property Relief and Business Property Relief reforms from 6 April 2026

At Autumn Budget 2024, the Chancellor proposed significant changes to Agricultural Property Relief (APR) and Business Property Relief (BPR).

On 21 July 2025 (Legislation Day or L-Day), the government published draft legislation and accompanying documents, along with the outcome of the consultation on how the reforms will apply to trusts. These confirm that the changes will by and large go ahead from 6 April 2026, with a few minor amendments. Overall, the reforms are largely unchanged despite representations made by us and other stakeholders as part of the consultation process.

How APR and BPR currently reduce inheritance tax

APR reduces the value of agricultural property and BPR reduces the value of business property when calculating inheritance tax (IHT). These reliefs may be given at either 100% or 50%, depending on the type and use of the asset, with no limit on the amount of relief that can be claimed.

As a result, APR and BPR can significantly reduce, or even eliminate, IHT:

• When a person dies or gifts assets to another person or to a trust during their lifetime, and
• When a trust is subject to 10-year anniversary charges and charges on capital distributions.

There are various conditions that must be met for APR or BPR to be available. For more, see our articles on Agricultural Property Relief and Business Property Relief.

Changes to APR and BPR from 6 April 2026 for individuals

Based on the draft legislation, from 6 April 2026, the 100% rate of APR and BPR will be capped at the first £1 million of combined agricultural and business property. The value of assets qualifying for APR or BPR above the £1 million limit will receive relief at 50%. One additional change is the index-linking of the £1 million allowance from 6 April 2030 in line with the Consumer Prices Index (CPI).

The £1m allowance will not be transferrable between spouses or civil partners, but it will refresh every seven years.

Shares not listed on a recognised stock exchange, such as those listed on the Alternative Investment Market (AIM), will qualify for 50% BPR instead of the current 100% relief, and this will not affect the £1m allowance.

The option to pay IHT by 10 interest-free annual instalments will be extended to cover all assets qualifying for APR or BPR.

In addition, from 6 April 2027, most unused pension funds and death benefits will be included in a person’s estate for IHT purposes. The draft legislation sets out that APR and BPR will be specifically excluded from applying to the pension assets.

Transitional rules apply to gifts made on or after 30 October 2024 but before 6 April 2026. These will initially be assessed under the old rules, but will fall under the new rules if the donor dies on or after 6 April 2026 and within seven years of making the gift.

Actions to consider

1. Estate planning should be reviewed, particularly for married couples and civil partners, as Wills are likely to need amending to ensure the £1m allowance of the first to die is not wasted.
2. Wills sometimes include a standard clause saying that all property qualifying for APR/BPR is transferred to a child, with the non-relievable assets going to the surviving spouse/civil partner, and thereby being exempt from IHT. The wording of these clauses should be reviewed, as it may now lead to unexpected tax charges under the new rules.
3. Regular lifetime transfers into trust may now become more popular, with both the £1m allowance as well as the £325,000 nil rate band available. A married couple could potentially settle £2.65m into trust tax-free every seven years.
4. Lifetime giving generally will be more important. The gifts out of surplus income relief, which is often overlooked, can be very valuable.
5. It will also become increasingly important to consider how asset ownership is structured and whether planning mechanisms and other reliefs, such as Conditional Exemption and Woodlands Relief, apply.
6. Pensions may also need reviewing. Previously, pensions were often left untouched due to their IHT-free status. These will now be taxable on death, and depending on the marginal tax rate of the beneficiary drawing down on them, can be assessed at an effective overall tax rate of 76%. In addition, the government has now confirmed that assets in pensions will not qualify for APR or BPR.
7. Consideration will need to be given as to how any additional IHT will be funded. Life insurance could be taken out to cover the IHT exposure.

Changes to APR and BPR for trusts

Most trusts are within what is known as the relevant property regime. There are IHT charges for such trusts:

• Whenever assets are added to the trust, at up to 20%.
• Every 10 years on the anniversary of the creation of the trust at up to 6% of the value of the trust fund.
• Whenever capital is appointed out, at a proportion of the rate applying at the last 10-year anniversary (or equivalent rate that would have been charged on inception if within the first 10 years). These are known as exit charges.

£1m allowance

Existing trusts that held property qualifying for 100% APR or BPR before 30 October 2024 (the date of the Autumn Budget) will each have their own £1 million allowance.

Trusts created on or after 30 October 2024 by the same person (known as the ‘settlor’) will have an allowance of up to £1 million between them, allocated chronologically based on the value of qualifying property settled.

One area we hoped the government would reconsider is the treatment of the £1 million allowance when a trust is wound up. Based on the draft legislation, any allowance allocated to a trust that is being wound up is simply lost, rather than becoming available again for future settlements. This may encourage the artificial retention of trusts solely to keep the allowance.

IHT charges

Capital appointments from existing trusts of assets settled before 30 October 2024 follow the old rules until the next 10-year charge. For assets settled since the Budget, the old rules apply only until 5 April 2026.

The first 10-year charge following 5 April 2026 will also be assessed under the old rules.

Thereafter, IHT on the appointment of capital will be calculated based on the rate used at the last 10-year charge, but now ignoring any APR or BPR (at either 100% or 50%) that was available then.

The trust’s allowance is available to offset against the value of any qualifying property being appointed, but this will reduce the allowance available at the next 10-year charge. The allowance then refreshes again after the next 10-year charge, for the following 10-year period.

Proposed change not being implemented

Based on responses to the consultation, including ours, the government has decided not to go ahead with extending the related property rules which may have added additional complexity to the valuation of shareholdings. Qualifying property settled by the same settlor into different trusts will not be treated as ‘related property’ for valuation purposes.

Actions to consider

Although, the draft legislation is subject to consultation and may change before it’s enacted, many trusts are being reviewed now:

1. There is a narrow window between now and 6 April 2026 when the transitional rules apply:
   – Assets can still be settled into trust with unlimited 100% relief (subject to the relevant conditions being met), although there will be a clawback charge if the settlor dies within seven years and after 5 April 2026.
   – Assets can be appointed out of trusts under the old rules, ie with uncapped 100% relief, and without affecting the rate of tax at the next 10- year anniversary charge. For pre-existing trusts, this can be done until the date of the next 10-year charge itself.
2. Existing trusts that held qualifying property on 29 October 2024 will have their own £1m allowance, so there is a strong argument for retaining these as part of any restructuring, although each case will depend on its own facts.
3. Any trusts settled post Budget with qualifying property will have utilised some of the settlor’s trust allowance, so consideration should be given to retaining these.
4. Some individuals may consider transferring £1m of qualifying property into trust now (potentially with £325,000 of non-qualifying property if their nil rate band is available) in order to start the seven year cycle.
5. It will also become increasingly important to consider how asset ownership is structured and whether planning mechanisms and other reliefs, such as Conditional Exemption and Woodlands Relief, apply.
6. Trustees will need to consider how any additional IHT will be funded. Some trusts can pay IHT from income, but specific conditions must be met. This is a point we are currently discussing with many of our clients.

How we can help

The legislation is complex, and the most appropriate next steps depend on the specific circumstances and requirements of the individuals, trusts and beneficiaries in question.

If you would like to discuss how these changes could affect your business succession or estate planning, or trust arrangements, please contact us.